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EurWORK
European Observatory of Working Life

Sweden: Wage formation

Observatory: EurWORK

Topic:

Date of last submission: 30 March 2009

Scheduled record delivery date: Monday, March 30, 2009

Published on: 30 March 2009

About

Country:

Sweden

Author:

Thomas Brunk

Institution:

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

The wage formation system in Sweden is slowly changing. The development goes from strict collective agreements of wage formation at the sector level to more individualised wage negotiation at company level. The IT sector has a leading role in this regard. Minimum wages are only enacted in collective agreements. The minimum wages that exist are relatively high when compared internationally. While minimum wages aren’t a much debated issue, the gender pay gap is often debated and the struggle towards more equal wages is emphasized by all social partners. However, the gender gap decreases very slowly.

1. Systems of wage formation

a) Please briefly describe the main systems of wage formation in your country (when relevant please distinguish between private-public sector). For example:

is the system underpinned by legislation or collective bargaining, a mixture of both, or other factors, such as the labour market?

who are the main actors?

do state bodies play a role in wage setting?

In Sweden, collective bargaining is the sole system of wage formation, both in the private and public sector. The trade unions on sector level handle most of the wage bargaining, in negotiation with the social partners on the employers’ side. Most employees have some form of individual wage flexibility built into the system, for example based on work performance (SE0803019Q).

State bodies play no direct role in industrial relations, except when conflicts occur. Furthermore, state bodies are supposed to be a “role model” in regard to issues such as equal pay for men and women.

b) If collective bargaining is the main determinant, what is the main level at which this takes place (national, sectoral, and/or company level)? Where relevant, please refer to other European Foundation studies that you have written in this context. Where collective bargaining fails, what is the role of labour market institutions (i.e. labour court, labour commission)? Provide an example if relevant.

Collective bargaining takes place mainly at sectoral level in Sweden. This is particularly the case for blue-collar workers, where almost all of the bargaining goes through the social partners at sectoral level. For white-collar workers, wage-bargaining usually takes place at company or establishment level – in the framework of the sectoral collective agreement. There are 60 sectoral trade unions and 50 employer organisations involved in the bargaining process, and these are signatory parties to about 600 collective agreements.

According to the National Mediation Office (Medlingsinstitutet), Sweden is moving towards a decentralised and individualised system of wage formation. In many sectors, the central agreements and the negotiated pay structures play a minor role, i.e. the final wage is decided at the company level. Most company level agreements, however, still incorporate stipulated guarantees regarding the minimum pay rise.

For about 40 years until the late 1980's, pay in the private sector was determined in national agreements centrally negotiated by the Confederation of Trade Unions (Landsorganisationen, LO), the Negotiation Cartel for Salaried Employees in the Private Business Sector (PTK) and the Swedish Employers' Confederation (today called the Confederation for Swedish Enterprises, Svenskt Näringsliv). Since 1990, however, wage agreements have been negotiated by the sectoral union and employers’ associations.

In Sweden, collective agreements on wages in the industrial production sector are used as a ‘trend setter’ for all the other sectors to follow. It is thereby the productivity in the industrial production sector that determines the wage development in other sectors, also in the public and service sectors. This model has been challenged, particularly by the service sector. So far, though, this structure remained intact.

The National Mediation Office mediates if the collective bargaining fails. The office mediates in labour conflicts, promotes an efficient wage formation process and is responsible for the official Swedish wage statistics.

c) Monitoring. What monitoring of collective bargaining is carried out (if any)? Who carries this out? (Joint/Tripartite body at national/sectoral level)? How does it do this? Are there any studies or surveys?

The National Mediation Office monitors the bargaining process. It publishes detailed reports and statistics on collective bargaining each year together with Statistics Sweden, and many smaller reports and statistics on their webpage.

In addition, the central social partners monitor the process closely and come up with statistics and reports. Furthermore, the Institute for Labour Market Evaluation (Institutet för arbetsmarknadspolitisk utvärdering, IFAU), conducts some studies on wage bargaining and its effects on employment rates.

2. Wage developments

a) Please briefly describe any major overall wage development trends over the past five years (refer to previous EIRO updates where appropriate)

During the past years, Sweden had low inflation rates and stable wage increases, resulting in gradually higher real wages. This has been a sharp contrast to wage developments between 1970 and the mid 1990s, when pay increased rapidly, as did the inflation, resulting in very small real wage increases.

As a result of the low inflation, between 2000 and 2006, wage increases for industrial blue-collar workers were lower than the European average when seen in nominal terms, but higher then the EU average in real terms (LO, 2008). This pattern is valid for all sectors of economy.

The gender pay gap is slowly vanishing (SE0706019I) and the wage development has, during the past five years, been better for white-collar workers than for blue-collar workers (SE0212104F). However, this latter trend seems to change. For the first time since the 1980s, wage increases for blue-collar workers in 2007 were higher than wage increases for white-collar workers (in percentage points, according to recent statistics published by the Confederation for Swedish Enterprises (Svenskt Näringsliv)).

b) What developments have there been regarding equal pay between men and women in your country? Is this an issue for debate?

Wage inequality and discrimination is still a hot topic in Sweden, even though there is legislation regarding “equal wage for equal jobs”. Though inequality and discrimination have been highlighted and attempts have been made to improve the situation, statistics show little changes.

In recent years, the gender pay gap has decreased, yet slowly. In 2006 for example, women’s pay increased more than men’s (SE0706019I). There are significant differences between sectors though. Much focus has been put on the fact that the gender pay gap results to a large extent from different pay levels in male-dominated sectors vis-à-vis female-dominated sectors. When female dominated sectors, such as municipal and public health care sectors, now demand substantially increased wages, it lies with all other sectors not to demand compensation for these increases. If they would demand (and get) compensation, all achievements in female dominated sectors will disappear into inflation.

Women’s average wage as a proportion of men’s (%), in 2004-2007, by sector

Public sector: municipal level

Public sector: county council level

Public sector: state level

Private sector: white-collar workers

Private sector: blue-collar workers

2004

89,6

94,5

N/A

99,0

93,9

2005

90,2

94,4

92,9

99,1

94,7

2006

90,3

94,9

93,5

99,0

94,8

2007

90,6

94,7

93,7

98,8

95,2

Change2004-2007

1,0

0,2

0,8

-0,2

1,3

Source: National Mediation Office, 2008

According to Statistics Sweden (SCB), the primary explanation concerning gender inequalities seems to be choice of occupation. According to the survey, women are more likely than men to take up work within low-wage professions. The gender gap is certainly an issue for debate. For instance, the recent strike of nurses was instantly looked upon from a gender gap perspective.

Mismatch between skills and job is more common among women than among men on the labour market in Sweden (SE0708019I). If women were better matched to jobs that suit their skills the wage gap would decrease. The mismatch thus contributes to the gender wage gap.

The National Mediation Office publishes each year a summary of the gender equality progress with regard to wage bargaining.

c) Please briefly describe the main recent sectoral agreements and outcomes in terms of pay

According to a report of the National Institute of Economic Research (Konjunkturinstitutet, KI), the bargaining round of 2007 has been a major one, covering approximately 3 million people, which equals just over 75% of all employees. In total, approximately 500 collective agreements (of about 600 in total) have been negotiated, encompassing the whole public sector and most of the agreements in the private sector (KI, 2007). These figures can be compared with 2006, where just over 50 agreements were renegotiated, covering around 100,000 employees (SE0803029Q, SE0712019I, SE070319I).

The collective agreements have been negotiated during a period of strong growth, increasing employment and industry profits. This picture may have contributed to collective agreements that allowed for evidently higher rates of wage increases compared to the previous period. Pay increases are on average 3.4% per year. The increase of wages, on a general level, is expected to be 4.3% in the private sector in 2007. Thus the difference between the final and the negotiated wage increase is expected to be higher than that of 2004-2006. Increases in the minimum wages also penetrated the negotiations in some low wage sectors (KI, 2007).

The average wage increase in September 2007, according to the National Mediation Office is 2.8% for the Swedish economy as a whole (expressed as the percentage change from the corresponding month in 2006). Within the private sector this figure was 3.3% for blue-collar and 2.8% for white-collar workers. We have reported on some of these collective agreements previously (SE0703039I, SE0703049I), where the above trends are clearly illustrated.

d) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

White-collar organisations put more and more emphasis on individual pay setting, as mentioned (SE0412103F). The trend is that more and more of the wage bargaining is arranged at the local level.

e) Recent main actions/strikes /protests on wages

The Swedish Association of Health Professionals (Vårdförbundet) was not able to reach an agreement with Swedish Association of Local Authorities and Regions (Sveriges Kommuner och Landsting, SKL) and therefore went on strike. The nurses demanded a minimum wages of SEK 22,000 (€ 2,340) and average monthly wage increase of SEK 1,700 (€ 182), or around 7% both 2008 and 2009. The employer organisation was offering wage increases of 4% in the first year and 2.5% in the second year.

The strike included more than 7,000 nurses and biomedical analysts. The public had understanding and patience with the demands of the nurses, but many were affected by the consequences. Thousands of surgeries and tens of thousands of check ups were cancelled. Patients were moved around between hospitals to enable acute health care.

The strike went on for six weeks but resulted in a quite small pay rise for the nurses, with 4% increase the first year and 3% the second, and a minimum acceptable wage of SEK 21,100 (€ 2,240) after one year’s employment. The local negotiations are not finished yet though, which makes it hard to judge the overall result of the strike.

In the some Swedish harbours conflicts are arising as employees demand to preserve influence over working times. The conflict began with an overtime blockade. Trade union think that many harbours have defied the blockade and threaten therefore with a major strike.

f) What are the main social partners’ views on wage developments in your country?

The social partners are now involved in negotiations concerning a new general agreement. The social partners do this to keep the wage bargaining process out of reach of political involvement. Political involvement is something that all social partners look upon as a potential source of harm to the Swedish labour market model based on social partners’ agreement.

The Confederation for Swedish Enterprises emphasises two issues;

wage cost must be looked upon from an international competitiveness angle

wages should be negotiated at local level, so that the individual circumstances for the particular enterprise are taken into account

Among the trade unions, there are differences between blue-collar and white-collar unions. Blue-collar trade unions are not as eager as white-collar unions to allow for wages that are dependent on individual performance.

Minimum wages

In this section, we are aiming to update information from the previous study on the minimum wage (http://www.eurofound.europa.eu/eiro/2005/07/study/index.htm)

a) Does your country have a national minimum wage?

No, minimum wages are only regulated in collective agreements, and only if the social partners agree to do so.

c) Are there minimum wages (sectoral, regional) covering a major part of the workforce?

The Swedish minimum wages are extremely hard to overlook. They are included in the 600 different (sectoral) collective agreements and change after each bargaining round. Moreover, they often depend on factors such as working experience, age etc. However, IFAU states that minimum wages concerns the major part of the workforce.

According to a Swedish trade union paper 90 % of the Swedish employees are covered by some kind of minimum wage, regulated through the collective agreement (TCO Newspaper, 2008).

d) What are the views of the social partners and the government on the minimum wage(s)?

One trend is that many social partners want to move closer to clear and distinct wage regulation, including collective minimum wages. The Swedish wage setting policies have received criticism from the European Court of Justice that the collective agreements are vague. It is for instance very hard for foreign companies to see if there is any minimum wage stated in the collective agreement. Therefore, the trade unions have begun to oversee their agreements, and try to make it more comprehensible.

e) Is the minimum wage a subject for debate in your country?

From time to time, the issue is up for discussion. The government, the politicians and all the social partners seems to agree though that minimum wages are best handled within the system of collective agreements.

f) Do you have any data on the minimum wage in relation to average wages, how it interacts with the tax system and any effects it is having on employment?

Minimum wages are high in Sweden in an international comparison. The Institute for Labour Market Policy Evaluation (2005) stated that the minimum wage is at least 60-70% of the average wage, but can be considerably higher in many cases, especially in the service sector.

4. Wage formation within the IT sector

Please describe in detail the wage formation process in the IT sector in your country.

I] Please give the main features of the sector

a) Importance of the sector in the economy

Information and Communications Technology (ICT) (%)

Share of ICT manufacturing in total manufacturing value added

4.2

Percentage point change in the share of ICT manufacturing in total manufacturing value added between 1995 and 2003

-3.5

Share of telecommunication services in total business services value added

3.5

Share of other ICT services in total business services value added

7.8

Percentage point change in the share of ICT services in total business services value added between 1995 and 2003

2.9

Source: OECD 2008

b) % of the workforce in the sector

There are 100,000-150,000 employees in the IT sector. This equals about 3% of the total workforce of about 4.6 million in Sweden.

c) Main pay-related characteristics, such as: low pay, differences in pay between men and women and/or older and young workers, wage drift;

The sector has higher wage levels than other sectors. According to Swedish IT and Telecom Industries (IT- & telekomföretagen within Almega), the companies within the sector are more anxious to fight the gender gap. However, the trade union side, for instance Unionen, do not think that the sector achieves better results than other sectors. The sector is rather male dominated.

II] Describe the main characteristics of the sector pay decision process

a) Is the wage formation process in this sector shaped by institutions? If there is a collective bargaining process, how does it work? Eg:

at sector level only;

at sector level, which then provides a framework for company level;

at company level only

Who are the main actors?

The wage formation process is based on collective agreements at sector level, which then provides a framework for company level negotiations. The framework is wide and flexible in its scope, in order to enable individual companies to negotiate according to their own economic situation.

The main actors are Swedish IT and Telecom Industries and Association of Swedish Engineering Industries (Teknikföretagen) on the employer side. The Swedish IT and Telecom Industries organises the vast majority of the IT-enterprises. However, important companies that have been in the business for a long time, for example Ericsson, belong to the Association of Swedish Engineering Industries by tradition.

b) Specific issues : upward pressures on pay such as wage competition between firms, the effects of a tight labour market, and using pay as an attraction and retention tool, the effects of migration on pay, the effects of the presence of multi-national firms within a sector and whether comparisons have been made between the pay offered by multinationals and local companies

Wage competition is evident, especially with regard to competition for the most skilled personnel. However, it is not as much rivalry anymore as in the nineties, when the sector was new and had no structure of collective agreements. The increasing global mobility of the skilled labour will result in higher wage competition. As it is possible to receive considerably higher wages in other EU-countries, it is getting harder for Swedish companies to keep their skilled professionals.

Multi-national firms, especially American companies, have brought a cultural clash to Sweden when it comes to wage formation. American firms had very little experience of a social dialogue, but have now begun to accommodate to the Swedish model. Most multinationals have a more thorough wage policy than local firms, and they are more used to creating incentives for good work. Furthermore, the multinationals often have, or try to have, the same wage policy all over the world.

III] Analysis on trends and views of the actors

a) Are there any major differences between this sector and the rest of the economy in terms of wage formation?

According to the employer organisation Swedish IT and Telecom Industries, the major difference to other sectors is that the IT sector’s wage formation is more developed when it comes to the individualisation of wages. The IT sector leads the way in this current trend in the Swedish labour market to allow more individual wage setting. Companies have free hands in their wage negotiation. However, if there is a conflict at company level, the parties involved have the collective agreement to relate to. Another difference is that the wages are considerably higher in the IT-sector than the rest of the comparable Swedish economy.

b) Are there any noteworthy trends at company level, such as an increasing individualisation of pay setting?

See above.

c) What are the main views of the social partners in this sector on wage formation?

According to Swedish IT and Telecom Industries, all the social partners agree that the increasing individualisation of pay setting is the right way to proceed. The sector is quite new and there is not the same tradition of social dialogue in the IT sector as in other sectors.

d) Are there any positions of the authorities on the sector’s wage policy?

There is no authority that has a mandate to discuss the wage policies on the labour market